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A look ahead to future farm policy: 'A massive amount of uncertainty'

CHAMPAIGN, Ill. — The trade war followed by a global pandemic have led agriculture policy into uncharted waters with no historical perspective to reflect on.

University of Illinois agricultural economists peeled back the complex layers of current and past federal policies and how those policies could sway future changes.

Jonathan Coppess and Nick Paulson conducted the farmdoc-hosted webinar.

“We are in the position of trying to peer into the future on what farm policy may look like coming down the road. There’s obviously a massive amount of uncertainty and this comes with all caveats about not being able to know where we’re headed,” Coppess said.

Paulson reviewed the recent federal government direct farm program payments, including the first round of Market Facilitation Program payments in 2018 and 2019 and the second round of MFP in 2019 and 2020, all in response of the impact of the trade war on commodity prices.

That was followed by the $2 trillion Coronavirus Aid, Relief and Economic Security Act enacted by Congress March 27, 2020. The bill included $9.5 billion earmarked under the Coronavirus Food Assistance Program specifically for assistance payments through the U.S. Department of Agriculture.

Through Aug. 17 Illinois received just over $438 million in CFAP payments to 39,019 applicants. Of that, just over $288 million (35,838 applicants) went to non-specialty crops, nearly $126 million (9,802 applicants) went to livestock, nearly $23.7 million (494 applicants) was allocated to dairy and nearly $491,000 (16 applicants) was for specialty crops.

“About $9 billion has been paid out nationwide in the program thus far. The overall program was estimated back in May to spend about $16 billion in payments, so we’re roughly at 56% of that overall,” Coppess said.

“That same estimate had a commodity by commodity estimate of what they thought the payments would be. Corn, soybeans, cotton, hogs and dairy are all below where those estimates were anticipated. Cattle have exceeded (by 149.9%) what they thought would be spent on those programs. There are a lot of questions on why that is the case.

“There were concerns we initially raised about this use of unpriced inventory, and so it’s possible that could be one of the bigger issues limiting payments to farmers right now because of that requirement in which USDA created this term of unpriced inventory based on what was sitting in storage and not under contract. More analysis is going to be needed to figure out exactly what’s holding up the payments.”

Second Proposals

Congress is currently negotiating a second CARES-type bill, but there are numerous sticking points between the political parties.

The House Democrats’ $3 trillion aid package proposal includes $600 per week supplemental unemployment insurance, $16.5 billion in direct payments to producers, 45 cents per gallon renewable fuel reimbursement to assist the ethanol industry, $1 trillion in assistance to states and local governments, funding U.S. Postal Service and election issues, conservation-based assistance, and an increase in the Supplemental Nutrition Assistance Program.

The Senate Republicans and Trump administration’s proposal includes $1 trillion in spending that includes an increase in the USDA’s Commodity Credit Corp. reimbursement by $20 billion for ad-hoc funding, $200 per week in supplemental unemployment insurance, liability shields for employees, school funding tied to re-opening.

Ad-Hoc Support

“For some historical perspective, we’re in a pretty significant era here in terms of the way in which the government has been providing support to the industry. Programs that we refer to as ad hoc, meaning there were temporary in nature and passed in response to some extraordinary events that were taking place. This includes the MFP and CFAP programs over the last three years,” Paulson said.

Over 40% of total federal payments in 2018 were associated with MFP. In 2020, 70% of total federal direct payments to farmers are coming from ad hoc programs.

“The last time we had significant consecutive years of ad-hoc payments were in the late 1990s, early 2000s and they were quite large in that time frame (38% of total federal direct payments to farmers in 2000), but much smaller than what we’ve had in the last three years both in terms of total dollars and relatives share of total payments coming from ad-hoc programs during that era,” Paulson explained.

Paulson noted how these ad-hoc payments fit into the overall return and income specific to Illinois using data from farms enrolled in the Illinois Farm Business Farm Management program.

“Since 2014 we’ve been roughly on average around kind of breakeven return levels once we incorporate some of the federal support that goes into that operator and land return, similar to what we were experiencing in the late 1990s, early 2000s. Ad-hoc payments from MFP and CFAP helped to achieve breakeven returns in 2019 and 2020,” Paulson said.

“That’s probably relieved some of the downward pressure we might expect to see without these ad-hoc payments in terms of production cost, whether that be on the land cost side through cash rents or through non-land costs and farmers having to make some adjustments there.

“Looking ahead to 2021 is where I think our short-term concerns lie at this point. There is no ad-hoc aid guaranteed for the rest of 2020 let alone 2021. Your guess is as good as ours what the election results in November will imply for expectations associated with continued aid to agriculture next year.

“But it’s pretty clear that given where we’re at with prices USDA’s most recent estimate for the 2020-2021 marketing year average price for corn is $3.10 per bushel, $8.35 on soybeans. In the absence of some additional ad hoc style aid in 2021 we’re looking at on average some pretty significant negative returns or returns that are not going to be sufficient to cover average land costs given where they’re currently at.”

Farm Bill

All of this is happening as the focus will soon turn toward the farm bill that was enacted in December 2018 at about the same the administration was creating MFP program and the rapidly unfolding tariff conflict. The farm bill expires in 2023.

“Are we seeing this kind of pressure may be leading to an earlier farm bill? We are in the wonderful frenzy of the campaign season and certainly a lot of this depends on how the elections play out not just whether or not we’d have a new farm bill, but what kind of policy discussions we see and how that might unfold politically in congress and with the administration,” Coppess said.

“An early farm bill is likely a signal that we’re going to see adjustments in the programs if not some pre-wholesale changes potentially and then whether we are in early farm bill mode, continued ad hoc mode, or stick to the 2023 schedule.

“We have continued to get an increasing level of questions and discussions around acreage policies and in particular something in the vein of the old set-aside acreage policies that were eliminated back in 1996 and whether that is a policy option for renewed discussion or what that might look like updated for more modern times, whether it’s more modern export and world market situation, the modern set of challenges around COVID, the tariff conflict and what it means for the World Trade Organization and so forth.

“There are a whole lot of questions regardless of when we see the next round of farm policy outside of the ad hoc emergency standpoint. But I do think we can certainly see at least potential areas that we may be trending in. Some of them I think are more concerning than others.”

Set-Aside

Supply management or set-aside acreage policies have been the topic of several farmdoc articles co-authored by Paulson, Coppess, Carl Zulauf, Krista Swanson and Gary Schnitkey. The recent examples are the Payment-in-Kind program, most recently implemented in 1983 and eliminated in 1996, and the Conservation Reserve Program.

PIK, aimed at reducing production, paid farmers not to grow certain crops such as corn, grain sorghum, wheat, rice and cotton and paid the farmers a prescribed percentage of crops they would have grown instead of cash.

The farmdoc articles provided background and historical context from the federal government’s previous supply management and set-aside programs.

“Based on the data and the trends in global grain and oil seed production our opinion is these are things we should probably stay away from. Not everybody agrees with that but I think our main thesis is that relative to when those programs had been used in the past the U.S. role in terms of being a global supplier of these commodities has only declined,” Paulson said.

“So, the potential impact that supply management could have, given the position that some of our global competitors are in to fill those gaps and respond even if we’re limiting acreage or some of the other commodities that are produced here. Historically supply management tactics have been less effective than intended and I think our argument is that they would be even less effective today if implemented in the way that they’ve been done historically. Now there may be different ways we can look at doing things like that.”

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